The US Federal Reserve’s Federal Open Market Committee (FOMC) has kept interest rates unchanged for the fourth consecutive time at a 4.25 per cent to 4.5 per cent range in its latest meeting. The American central bank has maintained the same level since December 2024 amid ongoing geopolitical tensions and trade-related volatility.
The Fed said in its policy statement that although swings in net exports had affected the data, the economy grew at a solid pace, with a low unemployment rate, but inflation remained somewhat elevated.
According to the Fed’s dot plot chart projections, the median of Fed officials expect to lower the key benchmark interest rates by 50 basis points (bps) in 2025, indicating that there could be two rate cuts seen later this year. Economic projections by participants from the meeting pointed to further stagflationary pressures, alongside downgraded growth expectations and higher inflation forecasts. It projected the Gross Domestic Product (GDP) to advance 1.4 per cent this year, a drop from the earlier 1.7 per cent forecast in March. The core PCE inflation is projected to reach 3 per cent by the end of the year, while the unemployment rate is expected to rise from its current level of 4.2 per cent to 4.5 per cent this year.
US Fed Chairman Jerome Powell in the post-meeting news conference highlighted a recent uptick in inflation expectations in his opening remarks and said that trend may be tied to tariffs. He added that even with so an increase in tariffs this year was likely to push up prices and weigh on economic activity, the effects on inflation could be short-lived, reflecting a one-time shift in the price level.
